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The global economy is experiencing its deepest recession since
1946. We project that world real GDP will decline by 4.8% in 2020,
a far worse outcome than the 1.7% contraction in 2009 at the height
of the global financial crisis.
As countries remove restrictions on activities, the global
economy is recovering. However, new outbreaks of the coronavirus
disease 2019 (COVID-19) virus and the likelihood that a vaccine
will not be widely available before mid-2021 make any assessment of
the economic outlook challenging. Several forces are likely to
impede the post-crisis recovery, including the financial stresses
of households and businesses, crowd avoidance, eventual withdrawal
of fiscal stimulus, and losses in capital formation.
The United States has experienced the highest
number of COVID-19 cases. After a deep recession in March and
April, a robust recovery began in May. With infection rates
remaining high and fiscal support diminishing, economic growth is
now slowing. US real GDP is expected to fall by 3.5% in 2020 and to
recover by 3.7% in 2021.
Europe, Japan, and Latin America have
experienced severe recessions. After a decade of anemic growth in
the eurozone, this setback raises concerns about long-term
deflation and debt sustainability. Eurozone real GDP is expected to
contract by 8.5% in 2020 and to take until 2023 to regain its
late-2019 peak.
Mainland China has enjoyed a broadly based
economic recovery. Exports have surprised on the upside, helped by
inventory restocking and the demand stimulus policies of advanced
economies. Real GDP is projected to expand by 1.7% in 2020 and 7.1%
in 2021.
Central banks and governments are taking concerted action aimed
at stabilizing financial markets and cushioning economies from
downside risks. However, until the COVID-19 virus is more broadly
contained and confidence returns, the efficacy of these actions
will be limited.
Emerging markets that depend on commodity exports, carry high
levels of external debt, and have experienced a currency
depreciation are particularly vulnerable.
Parts of Latin America, South Asia, and Africa have been hit
hard by the global pandemic. High rates of informal labor and
economic inequality, combined with insufficient healthcare
facilities in some countries in these regions, put their economies
at particular risk.
Signposts
Purchasing managers' indexes, combined with consumer and
business confidence indexes, will be watched as indicators of
optimism or pessimism about future consumption, investment, and
production.
The turning point in the economic cycle will depend on the path
of the COVID-19 virus and the lifting of restrictions on business
activity. Declines in active COVID-19 cases and progress in
developing treatments and a vaccine will be encouraging signs.
Commodity and industrial prices can indicate a variety of
factors, including major economies' demand, investment intentions,
and uncertainties. Moreover, these prices directly affect the
incomes of commodity-exporting countries.
Another downturn in equity prices would signal a loss of
confidence in economic resilience. Flight to safety by investors
could increase currency-market volatility and financial risks in
highly (foreign-currency) indebted countries. Sudden changes in
equity risk premia or the value of the US dollar will be watched
carefully.
Posted 05 October 2020 by Sara Johnson, Executive Director – Global Economics, IHS Markit
